Transcript How to Become 'Pitch Perfect' and Avoid Investor Turn-Offs
HOW TO BECOME "PITCH PERFECT" AND AVOID INVESTOR TURN-OFFS
Live Webinar October 30, 2012
PANEL OF EXPERTS
Mike Drzal is the chair of LeClairRyan's Venture Capital practice and he works extensively with start-ups and emerging companies at the investment level - coaching clients that are seeking capital and funding sources. As lead counsel, he focuses his practice on debt and equity financing, mergers and acquisitions, strategic alliances, joint ventures, management buyouts, intellectual property licensing transactions and a variety of domestic and international transactions. Mike currently serves as general counsel to emerging companies, including medical device, bioinformatics, pharmaceutical, diagnostics, manufacturing and distribution, alternative energy, medical information technology, internet and high-tech research and development companies.
PANEL OF EXPERTS
Robert Okabe’s first involvement with start-up ventures was as an angel investor. He has made 14 investments of his own funds since 1995, with one major liquidity event and three other positive returns of capital. He is also a co-founder of an angel group, helped organize an angel capital fund, and serves as a Trustee of the Angel Resource Institute. He is a co-founder of RPX Group, a firm focused on building start-up companies from university innovations, and has led many of the firm’s most successful engagements.
PANEL OF EXPERTS
Luke Smith has spent time in engineering and operations at large public companies, as well as a string of start-ups. He led engineering organizations, manufacturing organizations and product divisions in large public companies. In 1995, he entered the world of start-ups as vice president of operations and chief executive for a handful of technology-based companies. Smith has extensive experience obtaining funding for start-ups. Additionally, he consults, mentors, and serves as a director in the start-up space.
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BEST PRACTICE GUIDE
Approaching funding sources Networking Creating a stellar presentation
TOOLS
Companies need five tools to effectively engage with investors Elevator Pitch Executive Summary Business Plan Slide Presentation Financial Model
ELEVATOR PITCH
A quick verbal synopsis of the company Under two minutes long Covers only MAJOR items (market/unique technology/strong team) Structured as a lead-in to a follow-up discussion (don’t ask for money at this point)
PERSPECTIVES- Elevator Pitches
Elevator pitches never happen in elevators Listeners can walk away at any time Others are probably nearby (no confidential information) Learn from the movies-
DATA
Based on a survey of organized investor groups conducted by the Angel Resource Institute 58 responding groups (represent 2000+ investors) Investment run rate of over $50MM a year Questions were asked on a seven point scale 1 is best, 7 worst
EXECUTIVE SUMMARY
Value of Executive Summary 2 31% 1 59%
Entrepreneur’s primary outreach document Efficient screening tool for investors
Executive Summary Quality 3 44% 1 11% 2 27%
Some are good (38% rated 1-2) Most could be better (62% rated 3-5)
PERSPECTIVES- Executive Summary
Preferred Length (pages) 3 15% 1 13% 2 63%
Keep it short- 2 pages Deliver as a PDF No formatting problems No changes or errors POST (problem/opportunity/solution/technology) STORM (strategy/team/others/resources/milestones)
BUSINESS PLAN
Value of Business Plan 3 20% 1 33% 2 25%
Should tell the complete story of the company Not as valued as the executive summary!
Quality of Business Plan 1 6% 2 13% 4 24% 3 40%
Investors aren’t impressed Better than average is not good enough
PERSPECTIVES- Business Plans
Preferred Length (pages) None 30% 21 - 30 28% 11 - 20 34%
Length less important Avoid confidential information Few will sign an NDA at this point Don’t ask!
Hide use of business plan software Use demos or diagrams for complex issues Describe full regulatory process (if applicable)
SLIDE PRESENTATIONS
Value of Presentation 3 24% 2 22% 1 41%
First major interaction between investors and entrepreneurs Confirms or refutes impression to date
Quality of Slide Deck 3 48% 2 24%
Better than business plans Perhaps not good enough A great presenter can make a decent slide deck great
PERSPECTIVES- Slide Presentations
Preferred Length (minutes) 16 - 20 32% 11 - 15 45%
Achieve the 3Cs Clear Concise Compelling Open strongly Expect to be interrupted Know how to use PowerPoint!
FINANCIAL MODELS
Value of Financial Projections 1 25% 2 42%
Highly valued by investors, but Typically scrutinized later in the investment process Not necessarily a deal killer
Quality of Financials 5 22% 3 26%
Financial model quality is viewed negatively Some problems are easily fixed
4 26%
PERSPECTIVES- Financial Models
Cover five years in your model Which way to the airport?
Use graphs with detailed backup Focus on cash flow Capital expenditures/receivables/inflation There is no such thing as a conservative scenario!
ASSUMING THRESHOLD REQUIREMENTS ARE MET, THE COMPANY ENTERS THE SALES MODE.
Selling what?
The opportunity The team Excellent presentation skills are a must
PRE-LAUNCH CONSIDERATIONS
Does launch make sense?
Use disciplined, gated process to determine: Gate 1: Market Assessment/Key Market Conditions Gate 2: Technical Review/Technology Evaluation Gate 3: IP Assessment Gate 4: Market Evaluation Gate 5: Commercialization Plan Gate 6: Business Plan © Copyright 2012 LeClairRyan All rights reserved
SUCCESSFUL FUNDRAISING: A MANY-FACETED CHALLENGE
Threshold requirements: Good IP or some other barrier to entry A big, lucrative addressable market A strong management team, including a bankable CEO
“EFFICIENCY THEORY” GETTING FINANCING
If there were a “correct” way to get financing, everyone would do it the same way Almost every approach works sometime Some approaches do work more often than not It’s a low yield activity; plan on many pitches
When getting advice remember humans “filter” low yield activities often selecting matches to their prejudice or experience
CRITICAL ELEMENTS OF A SUCCESSFUL PITCH
Team Problem and solution Proof of market acceptance/validation Market size Exit
STEPS TO ACHIEVE FINANCING
Plan Prepare Pitch Verbs implying action
PLANNING– WRITTEN OR AT LEAST VISUAL
Know your value proposition/core competence Customers/market size/share of market List all milestones to cash flow breakeven Have basic financial statements Build a team with domain expertise “The plan is nothing. Planning is everything,” Eisenhower
THE EXECUTIVE SUMMARY
A door opener, not a securities disclosure document 2 to 3 pages long Typical Content: The company The problem/opportunity Large market size Competition position and barriers to entry by competitors Go to market strategy The team Financing requirements Exit strategy Always include contact information and a securities disclaimer
THE BUSINESS PLAN
Executive Summary Company Overview
· · · · · · · · · · · · Nature of Business Company Vision Business Size Business Development Stage Funding Awards & Recognition
Product
Product Concept Product Concept Market Segment Targeted Users Targeted Buyers Competitive Advantage/Barriers to Entry by Competitors Stage of Product Development Intellectual Property Status
THE BUSINESS PLAN
(CONT’D) · · · · ·
Market Analysis & Marketing Strategy
Market Analysis Go-to-Market Strategy Target Buyer Profile Positioning Pricing Promotional
Management and Organization
· · · · Management Team Staff Advisors Organizational Chart · · · · ·
Financial Plan
Financial Needs Summary Investor Summary Revenue Model Projections (Sales & Income) Assumptions & Comments
Appendices
PITCH DECK ELEMENTS
1.
2.
c) a) b) d) “Mandatory figures” Clearly identified ROI, time to cash flow breakeven (after breakeven exit “takes care of itself”) Market size at a scale matching their style.
Your sustainable competitive advantage, value proposition, core competence, moat, etc.
“reference customers” c) a) b) Optional elements – personalize the pitch Team bios Brief tutorial on technology involved Company history
Target a 20 slide max. Bring back up slides should the audience want to get into details
THE SLIDE DECK
Typical Content:
Slide 1 - Overview Slide 2 - The Problem Slide 3 - The Solution Slide 4 - Opportunity and Market Emphasize large addressable market Slide 5 - Technology/Product Slide 6 - Unique Competitive Advantage/Barriers to Entry Slide 7 - Competitive Landscape Slide 8 - Go-to-Market Strategy
THE SLIDE DECK
(CONT’D) Slide 9 - Financial Roadmap Include high level 5 year projections Include investment sought Slide 10 - The Team Slide 11 - Current Status Milestones achieved to date Pending orders Slide 12 - Exit Provide most likely exit scenario Provide comparables if available Slide 13 - Summary 3 Strongest points – what distinguishes this opportunity from others
PREPARING
Don’t pitch “cold.” Conduct research to know: The audience (history, responsibility, authority) Their investment “sweet spot” and style Their existing investments and balance to invest The “fund’s” age Learn from previous presenters Get introductions/references before your pitch Do critical dry runs with your slide deck
PITCHING
The cardinal rule of any presentation is to “meet the needs” of the audience 2.
3.
4.
1.
Be prepared for “games.” You may not get to use your slide deck Engage with the audience Sell Take questions
TAKING QUESTIONS
It never “depends”. Give direct answers. It’s not an opportunity to display your vast intelligence Use your planning to prepare for questions. Failure to answer a basic question will usually disqualify you.
If you don’t have the answer admit it. Then arrange to get the answer.
WAR STORIES
Our company raised $100 million(four rounds) The CEO was a salesman We were a great team We executed to our committed plan The CEO created a sense of scarcity We raised money when we didn’t need it.
I raised 17 million (two rounds) The investors believed that I was instrumental in a previous $200 million success.
We executed perfectly to our committed plan We were a good team We didn’t pivot. I wasn’t as good as the CEO above Company sold at value of money invested Our company raised $35 million CEO had a previous successful $150 million exit We had a unique approach to a several billion dollar emerging market The “team bio” was exceptionally strong
QUESTIONS?
Utilize the public chat at the bottom left of your screen to submit your question. The panel will address them in the order they are received.
Thank You!